Grants, Gifts, and Concessions: Three Paths to a More Affordable Home Buying Experience

Saving Money on a Home Purchase Whether you are buying a first home or ready to move into a larger house, you are probably already anticipating the cost with some degree of hesitance.

What you may not know, however, is that you might be able to cut some of those costs and make the purchase more affordable for you by using a grant, approved monetary gift, a seller concession, or some combination of the three. 

Grants: Welcome Assistance for Home Buyers

Grants to assist home buyers with a portion of the costs involved with purchasing a home can provide welcome relief for the home buyer who may be having difficulty in covering all the costs involved in the home buying process. Home loan programs such as those offered through the United States Department of Agriculture (USDA) Rural Development Program and the Federal Housing Administration sometimes offer a variety of grants and low-cost loan options designed to help people with lower incomes or other financial hardships succeed in becoming home owners.

In addition, various housing-related grants are also available on the local, state, and federal level, as well as those obtainable through specific organizations or groups. Your local real estate professional and mortgage lender are excellent resources for finding out more about any housing grants that may be available to you in your city or state. 

Gifts: How Families Can Help

Another option that can be helpful to the hopeful home buyer is a monetary gift from a family member. Unlike down payments which often have to be “seasoned” in the prospective buyer’s bank account well before the home purchase, allowable gift funds can go directly from the gifting party to the closing statement and be used to offset down payments, closing costs, or other expenses related to the home purchase. To make sure that the mortgage you plan to apply for allows gift funds, take time to discuss the option with your lender before deciding which loan option to choose. 

The use of gift funds comes with strict rules that must be observed, including: 

  • the source of the funds must be a relative or someone able to prove a very close relationship exists, such as that of a godparent/godchild, etc. 
  • the funds must be a true gift and cannot be a loan or require any type of repayment
  • proof of sufficient financial health to make the gift may be required of the gifting party, such as a supportive bank statement
  • tax implications may apply for the gifting party

Concessions: Working Together With Sellers

Seller concessions can also be a way to help cover some of the costs associated with purchasing a home. In most cases, this type of concession request is included in the buyer’s offer and is part of the original negotiations. Although lender policies may differ, it may be possible to use seller concessions to cover all or part of your expected closing costs.

Seller concessions typically cannot, however, be used to give actual cash back to the buyer, although other forms of seller concessions, such as those related to repair or inspection issues are usually allowed. To determine if asking for a seller concession to offset closing costs is a good choice for your situation, take time to discuss the matter with your real estate agent before making an offer. 

At the end of the day, buyers should carefully consider what moves will be best for their long term situation. What works for one person may not work for another, so it is very important to weigh all options before making a final decision.

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